Tuesday: the foreign exchange market

The pound strengthened significantly against the U.S. dollar, approaching to the maximum of 5 Oct. The reason for such dynamics was stronger than expected data on industrial production in the UK, which helped to offset the negativity from the external trade statistics.

Office for national statistics said that U.K. industrial production slowed for a second straight month in August. Industrial production rose 0.2 percent compared with the previous month, lower than the growth in July by 0.3 percent. It was the fifth consecutive monthly increase. The expansion largely was driven by manufacturing output which grew by 0.4 percent. Meanwhile, mining and quarrying declined by 2.0 percent. In annual terms, growth in industrial production in August rose to 1.6 percent from 1.1 percent in July. The expected growth rate was 0.9 percent. The manufacturing production in August increased by 2.8 percent per annum, exceeding the forecast of economists, the growth of 1.9 percent. Another report from ONS showed that construction output in August rose 0.6 percent from July, mainly due to growth of 1.7 per cent of total new orders. He was expected to remain unchanged during the month.

Additional support to the pair GBP/USD had a pervasive weakness of the U.S. currency and increased the likelihood that expected in November, increasing interest rates of the Bank of England will be the beginning of the tightening cycle of monetary policy.

“After the night Office for national statistics revised to increase estimates of labor costs in the second quarter (+2,4% +1,6%) among market participants has increased expectations that the Bank of England will start to raise interest rates. This situation will be to support the pound, if only the negotiations on Bracito not come to a standstill,” said analysts at Bank of Tokyo-Mitsubishi UFJ. adding that the expected increase in the key rate of the Bank of England at the November meeting. “It seems reasonable to expect one or two more increases in interest rates in 2018 if the UK will be able to reach an interim agreement with the European Union for a period of approximately 2 years,” said analysts.

The Euro fell against the U.S. dollar, approaching to the maximum on 29 September, which was due to lower yields on 10-year US bond, the widespread weakening of the American currency and also the correction of positions on the dollar ahead of the publication of the minutes of the last fed meeting and inflation data for the US, which can help to mitigate the concern among FOMC members that the slowdown in inflation that began in the spring, will continue. Meanwhile, September’s strong report will further weaken inflation concerns and make rate hike in December is more likely. According to the average forecasts in September, consumer prices rose 0.6% after increasing 0.4% in August.

The US dollar index showing the ratio of the dollar against a basket of six major currencies, declined 0.45% to 93.25 level. Meanwhile, the yield on 10-year bonds now amounts to 2.341%. Since the beginning of the session, the decline of yield was 2.7 basis points or 1.14%.

Further strengthening of the Euro kept investors ‘ anxiety about the fact that during his address to the Parliament of Catalonia, the head of government autonomy Carles Pujdeme may declare independence unilaterally. However, these fears were dispelled after Pujdeme called for dialogue and not declared independence from Spain. He also proposed to examine the issue of international mediation. However, Putteman noted that it adopted its mandate for the establishment of an independent Catalonia. In turn the press-Secretary of the Spanish government stated that Catalonia declared independence pending. Experts note that there are some very serious questions about the legality of the Declaration of independence and if Madrid decide that Pujdeme broke the law, they can strike back.

Information-analytical Department Forex club

Tuesday: the foreign exchange market 11.10.2017

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